DATE:  23 OCTOBER 2008

If something isn’t part of the core business, get someone else to worry about it.
Whither the modern outsourcing provider? On the one hand, it has to provide some kind of business value for its client. On the other, it also struggles to find the skills that force companies to outsource in the first place. And because technology is so intertwined with modern business, quite often customers don’t want to own a problem, but also can’t bear to lose control. It’s a unique set of pressures, as ITWeb heard during a roundtable discussion held in Johannesburg recently.

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The conditions of outsourcing contracts can often be unrealistic, says Maurizio Bazan.
According to Lance Fanaroff, joint-MD of the Integr8 Group, the skills shortage is just as common for outsourcers as it is for other businesses, but it does work both ways. “The biggest challenge for everyone is the skills shortage, but that is both a pro and a con,” he says. “Companies want to outsource because of it, but it’s then hard for us to find skills.”
Another challenge facing outsourcers is the convergence of telecoms and IT. Although convergence is an old word, from an outsourced partner perspective the skill set to align those strategies can be hard to find.
Frank Mullen, COO of the telecommunications division at ITEC, says his customers are looking for one point of contact. “In the past, companies had a telecoms solution in-house, a data solution in-house and a software development solution in-house. Because of instant messaging, VOIP and broadband, I as an outsource provider can offer a much higher quality of service to my partners, but I also have to align solutions with those partners and be making decisions for them. It’s not their duty to understand technology. When you go [see them] customers ask: can you do my data, my telecoms, my networks, my hosting and my applications? So the pressure on outsourcers is to get those skills on board.”

David Jacobsen, technical director at Synaq, agrees the skills shortage is a major issue, particularly when it comes to specialised skills. “I personally interview about five people a week. We need good IT people and good Linux people. The problem you find is that hard-core Linux guys aren’t very good with customers. They look funny, have long hair, eat pizza and don’t like talking to customers – which can be a serious problem.”

Jack of all trades

“Customers ask: Can you do my data, my telecoms, my networks, my hosting and my applications?”
Frank Mullen, COO of the telecommunications division, ITEC

The role of the outsourcer has changed from a service provider that takes over one aspect of managing technology into much more of a trusted broker. Mullen says customers are really being forced to look at brokerage outsourcing because of marketing campaigns by the big vendors.

“They’re being bombarded with lots of information. A few years ago it wasn’t too hard to make a decision, but now the environment is a lot more complex. The choice is greater and that means a greater amount of time taken to develop skills or just educate yourself on which way to go. The dilemma for outsourced partners is you have to give away your IP and knowledge in an industry where some people charge R1 000 per hour to develop those solutions.”

Jacobsen says it’s challenging, when dealing with partners, to present a unified service to customers. “Our customers say: ‘We want to log one support request and deal with one person.’ That presents help-desk and reporting integration problems when dealing with our partners, even if they’re good at what they do.”

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Lance Fanaroff, Integr8, and Pieter du Preez, Spescom

JC van Niekerk, outsource executive at GijimaAst, agrees that the role of the outsourcer has changed. “What customers are looking for is you to become part of their business and they expect you to handle the whole lot on their behalf. The complexity of managing that, behind the scenes, is managing third parties, especially when you need to manage relationships with the likes of Telkom and SITA. It’s often not easy. The customer says: ‘I want one-stop accountability’ and you have to manage that. More corporates are coming out with tenders that specify a multi-vendor approach and that forces vendors in the market to work closer together. I’ve seen various big outsource jobs where we work together with our competitors and I’ve been pleasantly surprised by the maturity of vendors willing to work together in the best interests of the customer.”
Van Niekerk says the reason for more maturity is experience. “Outsourcing started on a bad note in this country with a few well-known case studies. We’re now in the second wave of outsourcing. Most customers had a first round where they learned. Customers have learned and there’s been some big successes.”Some customers have long memories though. Deon du Plooy, head of business development for contact centres at Rewardsco, says although outsourcing embraces many different disciplines and approaches, they tend to be tarred with the same brush by those customers with a bad experience in their past.

“Even though outsourcing is a very diverse topic, you can go to a client who had a bad experience five years ago and the stigma of the word still applies to what you’re doing. At the CxO level, the big challenge is convincing them that outsourcing is not from the devil. The second challenge is that solutions such as server farms are commoditised, but customers are much more loathe to let go of more strategic operations that involve customer data.”

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Frank Mullen, ITEC

Part of the reason for that is the wrong approach to working with outsourcers. John Watling, senior consultant at Accenture, says the retained ability on the customer side is the problem. “There is a shortage of people who can teach customers how to manage their outsource partners. What often happens is that a customer will outsource their IT department and retain a few guys who are then expected to manage the outsourcer. That doesn’t work. You need a proper contract manager and IT management skills to do that. I’m not aware of any education programme in this country to do that. The guy who ran your IT department yesterday may not be the right person to manage an outsourced engagement. It’s about client maturity. Outsourcing is just another sourcing decision. One is to keep it in-house, another is to outsource the whole lot.”

One-stop shop

“The customer says: ‘I want one-stop accountability’ and you have to manage that.”
JC van Niekerk, outsource executive, GijimaAst

Global outsourcing has become inextricably linked with India; its IT economy has gone from zero to multibillion-dollar in less than 20 years. Can SA compete with other countries as an outsourced destination?
Du Plooy says, when trying to woo the global market, the value proposition is totally different. “You first have to convince a global client that SA is a great destination. So you’re selling socio-economic issues, governmental issues, taxes, subsidies and so on before you get to the solution. Then when that’s done, it becomes a question of region: do they go to KZN or Cape Town or Johannesburg?”

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Darryl Marcus, Intelleca
Darryl Marcus, business development manager at Intelleca, says South Africans are their own worst enemy. “International visitors come on a trip to SA and I’m sure when they get home they think: ‘South Africans are just confused – let’s go to the Philippines.’ We’ve competed for business to such a degree that we’ve confused the market. Depending on who you speak to, everyone will have a different value proposition. And each region competes for business too. An international player will come to Johannesburg and an outsourcer there will say: ‘Don’t go to Cape Town. It’s too close to the sea and it rains in winter.’ He goes to Cape Town and the Capetonians say: ‘Don’t go to Johannesburg. There’s too much crime.’ Then they go to Durban and whoever they see there will say: ‘Don’t go to Johannesburg or Cape Town. It’s much better here and it’s warm in winter and we have uShaka.’ You don’t get this in India; no one says: ‘We outsource to Banglaore or Mumbai.'”

So why do companies outsource? Du Plooy says research shows the biggest reason for companies to outsource is to save costs, but that this is mistaken. “It should be much more about business value. At last year’s Contact Centre World, the panel was talking about first call resolution and other such topics. I stood up and said they were missing the point. A contact centre doesn’t exist because it needs to be there. It exists for some strategic business reason. You can hit your SLA at 110% or 120%, but if you’re not delivering business value, then you’re not serving the customer. We’ve learned that you need the conviction to walk away from deals. If we’re not adding value, then we’d be hard pressed to engage in the first place.”

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David Jacobson, Synaq
Watling says although the South African market is less mature than the global market, as it catches up with the world, the driver becomes more about business value. “Cost will always be a consideration, but it’s more how you drive value. The way you drive it is by integration and by mixing the ingredients to deliver results for your customers quicker. If I’m trying to expand into Africa or get into a new market, I want to know how my outsource partner can deliver on that vision.”

Marcus notes another factor: the way technology is sold has changed. “We used to sell big onsite capex-based solutions,” he says. “And that’s now moved to services-based, opex-based, managed services environments. Our biggest stumbling block has been that, quite often, we’ll contradict ourselves by talking about the cost savings we offer in outsourcing compared with the actual costs when you add in telecoms costs, VPNs, MPLS and so on. Everyone wants a contact centre that’s the same as Absa’s or Vodacom’s or Cell C’s. But in order to get that quality, you need a big investment. It’s difficult for a smaller contact centre to get internationally required features such as call queuing, recording and unified messaging when the price tag is so big. The bigger contact centres can do that, but the smaller ones can’t.”

Van Niekerk notes that careful attention needs to be paid to how the customer defines value. “The customer needs to define what value really is. Is it less breakages and more uptime, or something else? That will determine what an agreement looks like. The problem is that many suppliers still have billing models that charge based on how many calls come through to the IT help-desk. So they’re charging them based on failure rather than success.”

The changing SLA

As with any relationship, the often-tricky balancing act between the needs of the customer and the needs of the outsourcer requires nurturing. Van Niekerk notes that the service level agreement (SLA) of today is much more fluid than it used to be. “The bad old days where guys were flown in from overseas to present the contract and, if it went wrong you flew in 12 lawyers, are long gone.”

Pieter du Preez, manager of business solutions at Spescom DataFusion, says as outsourcing moves to more ongoing services and less upfront spend, so relationships will evolve. “The important thing about outsourcing and managed services is that if you sell a solution, then you won’t be there if you’re not in for the service part of the business. Why that’s important is there’s a large amount of education needed while a partnership is in progress. It’s very similar to the Gartner hype cycle: there’s a peak of expectation, you go down a steep slope where the warm, fuzzy feeling disappears, and you start talking about what’s not included so that you can protect the profitability of what you’re doing – while ensuring the customer still has what he wants. At some point you realise where the balance is and that’s never at contract signature time. The challenge is flattening this learning curve, and an approach that works is to put it on the table up front.”

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JC van Niekerk, GijimaAst, and John Watling, Accenture

Mullen agrees. “SLAs evolve. Your initial SLA and the euphoria that comes from closing a deal changes. Six months later, if you revisit an SLA, it’s evolved because you’ve learned a little bit more about each other. We have very aggressive salespeople in this country, but they also become a bit single-minded. We partner with a lot of organisations – we have to because we’re not all things to all people – but hopefully the customer understands that we can be a single point of contact.”

One aspect that can prove problematic is where external consultants fit into the equation. Maurizio Bazan, IPG technology consultant manager at HP SA, says in the printer business, a lot of companies will get an external consultant to design the solution. “The consultant comes up with a tender or SLA and, what I find is, very often the conditions are unrealistic. Consultants have put in penalty clauses that say, for instance, if a device goes down and it’s not fixed within two hours, then the outsourcer will be charged 10% of the total fleet. Customers need to be aware of this before they take on external consultants.”
That’s not to say there isn’t a role for consultants. Du Preez says although technology advancements make things easier for the outsourcer in certain niches, there is no such thing as a full-blown outsourcing service that can fit into all solutions. “That’s where consultants can add value.”

Final cut

Hidden costs

“Quite often we’ll contradict ourselves by talking about the cost savings we offer in outsourcing.”
Darryl Marcus, business development manager, Intelleca

Despite huge advances in technology and a move away from the break-fix mentality towards remote monitoring, many companies don’t enjoy outsourcing. Says Du Plooy: “It’s because they don’t want to lose control – it’s an emotional thing. They don’t want to own the problem or deal with it, but at the same time, they can’t bear to lose their grip on something. There needs to be a tremendous amount of transparency when you outsource.”

Marcus says outsourcers could do also themselves some favours. “I’ve heard customers say to outsource partners: ‘You can keep coming back to me for the next two to three years and present to me as much as you like, but guess what? The other vendors are doing exactly the same thing and I’m not going to make a decision because no one has actually sat down with me and asked what the vision for my company is. Do you know what it is that I want to achieve and who my competitors are? Do you have anything for me?’ If we don’t change that, then we will just become box-droppers again.”

And therein lies the rub. Outsourcing is about offering better value than the customer can get itself, in-house. Providers need to bear in mind how they aim to deliver that value, and customers should bear in mind what their objectives are, and what value they expect to derive. Like any other relationship, outsourcing is a two-way street. Not a one-way whipping exercise.